Folius Ventures Research Report: Matr1x, the Perfect Combination of Strategic FPS Mobile Game and Cryptocurrency Recursive Growth Strategy with a Mature Cosmetic Business Model

Author: Folius Ventures

Yiye Ventures believes that the Matr1x ecosystem and its first product—strategic shooting mobile game "Matr1xFire"—are expected to further drive Web3-enabled gaming after Axie Infinity and StepN. Led by former Tencent executives, the Matr1x team has extensive experience in handling daily active users (DAU) and large-scale go-to-market (GTM) strategies, ranking in the top 10-20% of teams. In our view, Matr1x can achieve an elegant balance that, in the best case, helps it reach critical scale, attract the mass market, sustain profitability, while completely avoiding the death spiral problem of Web3:

Right Team and Market Positioning: Mobile FPS, with a considerable TAM and an experienced team that has completed similar projects.

Product Risk Has Been Mitigated: Strong production value shown in the beta version, along with strong player feedback.

Unfair Web3 Strategy for Achieving Critical Scale: Utilizing recursive viral loops to attract users in highly popular categories at low cash costs (validated by Axie and StepN's recursive loops and wealth effects).

Sustainable Development Through Mature Cosmetic Economy Models: Separation of ROI from consumer assets, a solid precedent set by the CS:GO skin market, and strong cash flow inducing buybacks, collectively reinforcing "growth debt."

Assuming the team can maintain strong GTM efforts, as evidenced by the strength of its NFTs, it may achieve viral growth within the next 12 months, realizing meaningful profits through loot boxes and NFT marketplace fees, and ultimately successfully launching governance tokens in 2024. If executed well, we believe Matr1x has the potential to set new standards for the next phase of Web3 gaming.

In the Matr1x A2 round of financing led by Folius, Yiye Ventures looks forward to collaborating with the team to realize its vision.

Tactical FPS Mobile Games as a Category Have Significant Scale, with DAUs Typically Ranging from 500k to 5mm, Making It a Good Target for Matr1x Fire

A finely crafted strategic shooting (FPS) mobile game generally reaches maturity at the 500k-5mm daily active user (DAU) stage, which is a reasonable target for Matr1x Fire. This user volume would place Matr1x among the top ranks of Web3 activity today.

Source: SensorTower, company disclosures, on-chain data

Vertical Axis: Average 2022 DAU*

Horizontal Axis: FPS/TPS Shooting Category + Cryptocurrency** Bubble size represents expected annual revenue

• Strategy = Primarily technology-based, no game progression or special abilities; Progression = Equipment, levels, special abilities, etc.; Battle Royale = Game type

We Believe Matr1x is Among the Top 10-20% of Teams in China's Web2 Gaming Industry

We believe the Matr1x team is a standout in China's Web2 gaming industry and one of the few capable of delivering top-tier Web3 mobile FPS games today.

The Matr1x team consists of a group of experienced engineers who have collaborated long-term within Tencent, with rich experience in handling high-throughput, mass-market mobile FPS:

• CrossFire Mobile (a mobile FPS with revenues reaching $600-800mm, previously had >20mm DAU)

• T-Game (a mobile FPS with $200mm in revenue, DAU of 2mm)

• CoDM (involved in technical integration, GTM, and distribution in China)

Former Colleague: "My collaboration with him focused mainly on technical and creative implementation. Even within [the company], he was very sharp. You could say he is a leading figure, possibly in the top 10%-20%, or even the top 5%, depending on the area of measurement. He is a very strong technical resource."

Former Supervisor: "He is good at identifying key issues, steady and mature, and has received good feedback from most of his colleagues… They are all passionate about Web3 and are deep thinkers… They are also a long-term team that won't be overly aggressive. Even in the Web2 space, I would rank them in the top 20%."

Former Team Leader/Builder: "Compared to all the Web2 teams I've seen, I think they are in the top 15% in their respective fields. They have worked together for a long time… The team is very cohesive, and they have been doing FPS for a long time. If there were opportunities in Web2, I would be happy to join them."

Investor: "They have technically skilled and rock-solid co-founders. We also talked a lot about their product aspects. After the communication, I felt they were very strong compared to other Web2/Web3 teams we have seen. I can say with certainty that peers have a very good impression of them, with no issues."

From the Current Gaming Situation, the Production Quality of Matr1x Fire is Top-Tier in Web3 Gaming, Even Solid in Web2 Gaming

The results of the past two closed beta tests validate that the game possesses the production quality of today's top products in Web3 and can compete on par with Web2.

User Survey Results Indicate Players Generally Agree with the Statement "On Par with Web2"

Recent survey results from the closed beta testing indicate that the production quality of the game is sufficient to be considered a top game in today's Web3 and can compete to some extent with Web2.

Source: Folius's survey results based on feedback from about 100 testers in the recent closed testing. These respondents identified themselves as frequent FPS players.

Left: "On a scale of 1 to 5, how does Matr1x Fire compare to other mobile FPS shooting games you have played?"

• Vertical Axis: Number of Votes

• 1 = Much Worse 3 = About the Same 5 = Much Better

• Independent Average Score: 3.55/5

• The average score indicates that testers generally believe the production quality of Matr1x Fire is slightly above the average level of the Mobile FPS Web2 industry, making it sufficiently excellent even as a Web2 product.

• However, the bias in this direct question may be significant—especially considering the audience as airdrop recipients may have vested interests, so it is crucial to benchmark against actual games (see right chart).

Right: "Compared to Game X, do you think Matr1x Fire's overall experience is better, the same, or worse?"

• Vertical Axis: Percentage Saying About the Same or Better

• Percentage of "Matr1x About the Same or Better": 66

• Average Benchmark Score: 2.72/5

• On average, 66% of respondents believe Matr1x Fire is "about the same or better" compared to the corresponding software.

• Further quantifying the respondents' evaluations yields an average score of approximately 2.72 for Matr1x—"slightly inferior to the broader top Web2 games."

• We are encouraged that the comparable works are all popular Web2 games. Being comparable means Matr1x has passed the standard.

As a Web2 FPS, Achieving Network Effects/Scaling is Costly and Challenging

• More Players

• Better Matchmaking + Stronger Social Interaction + Better Streaming Content = More Fun

• Increased Social/Emotional Needs Drive Increased Spending on Cosmetics/Skins

• More Revenue = More Marketing/User Acquisition Budget

The economies of scale/network effects of PvP social games like mobile FPS dictate that the spinning flywheel is also risky and domineering, even for Web2 giants.

1. The more players there are, the better the player experience (faster and fairer matchmaking results, and more active communities), attracting more players and streamers, achieving network effects for leading FPS games.

2. Spending and valuation of cosmetics are exponentially related to popularity, as this demand is inherently linked to social proof/self-actualization; sunk costs + handling muscle memory drive further retention.

3. Currently, the CAC cost for an FPS player is $1-100 per person. The higher the game's profitability, the higher the marketing budget for acquiring and retaining users. This will become a cost barrier for new market entrants.

4. Therefore, new entrants in Web2 must be prepared to invest considerable cash CAC costs (often several times the R&D expenses) to acquire a critical quality user base until (a) the gaming experience is good enough, (b) spending on cosmetics is high enough. Scale barriers and network effects dictate that this investment carries high risks.

We Believe Web3 User Acquisition Strategies are an Elegant, Low-Cost Way to Achieve Critical Scale

We believe that the Web3 user acquisition strategy through recursive wealth effects (no cash expenditure) + investment interest is the only way for Matr1x to achieve network effects in today's Web2 competition.

(Black Text)

• More Players

• Better Matchmaking + Stronger Social Interaction + Better Streaming Content = More Fun

• Increased Social/Emotional Needs Drive Increased Spending on Cosmetics/Skins

• More Revenue = More Marketing/User Acquisition Budget

(Blue Text)

• Stakeholders' vested interests attract more

• High ROI supports profitable assets + stable token prices; strong demand supports stable NFT prices.

• Black = Web2 Flywheel Flow

• Blue = Web3 Added Flow

In a Web3 design like Matr1x Fire, cosmetic NFTs and tokens (FIRE + MAX) are generated by players who own profitable assets (characters) through gameplay and require tokens to upgrade/create more characters:

1. Strong demand for cosmetics not only creates sustainable, non-investment return-driven income for characters but also strengthens the prices of characters and tokens as the number of players grows and demand rises, generating wealth effects.

2. This wealth effect naturally attracts more profit-motivated players (without any CAC expenditure).

3. Additionally, profit motives and wealth effects naturally encourage all NFT and token holders to become vested stakeholders in the project, driving its development. Even purely out of self-interest, this will…

4. Naturally bring strong non-cash customer acquisition power, promoting the operation of the FPS flywheel. Assuming that fiat currency entry and exit, customer journeys, output value, and consumption conversion are all above the qualifying line, achieving network effects is not only possible but also at a lower cost and faster speed.

The Added Impact of Web3 Should Enhance the Game's Viral Potential by an Order of Magnitude

For a typical player/KOL, the added influence of Web3 should increase the game's viral spread by an order of magnitude; but for the company, the increase in cash costs is negligible.

Black = Web2 Flywheel Customer Acquisition Points; Blue = New Highlights from Web3

This game is as fun as other shooting games I've played, and:

• - My friends are also playing this game and have told me more about it

• - The game streamers I usually watch are playing this game more

• - I can make money from it

• - The items in the game are actually mine, and I can sell them

• - I can earn more rewards by promoting the game

• - If I become a professional player, my income will be higher

Positively Impacting the Following Aspects:

• - Retention Rate/Login Rate

• - ARPU/Cut

• - Promoting Publicity

• - Company's Cash Expenditure?

• Yes: Yes

• Big Yes: Very Positive

• Yes but Small: Yes, but not much

For Matr1x, a favorable point is that shooting games have become the most popular game type on promotional channels like Twitch, YouTube, and TikTok. Such games can provide an intense and exciting viewing experience even for audiences who have not personally experienced them. We believe that when Matr1x integrates Web3 elements into this popular genre, its market appeal and influence will be further enhanced, driving it to become a hit.

Solving the Death Spiral Through Separation of ROI/Consumption-Driven Assets, CS:GO Precedents, and Buybacks

We believe that Matr1x's attempt to address the Web3 death spiral is elegant—through the separation of ROI/consumption-driven assets, solid non-investment return precedents set by CS:GO, and dollar buybacks of cosmetics.

Box:

• Matr1x Company / Treasury Balance: Matr1x/Financial Surplus

• Asset Sink: Reducing Assets

• High-end Avatar (Earning Asset): High-end Characters (Profitable Assets)

• Avatar (Earning Asset): Characters (Profitable Assets)

• Cases (Yield): Loot Boxes (Yield)

• Cosmetics (Yield): Cosmetics (Yield)

• High-end Cosmetics (Yield): High-end Cosmetics (Yield)

Relationship Description from Left to Right:

• Gameplay: Gameplay

• Repair Upgrade N-to-1: Repair Upgrade N-to-1

• "Breed": Breeding

• Earn: Earning

• Case Opening: Loot Box Opening

• Matr1x NFT Exchange: Matr1x NFT Trading

1. The separation of profitable assets (green box) and cosmetics (blue box, as yield) separates ROI and consumption-driven demand. CS:GO has already proven the TAM of pure cosmetics.

2. Since dollar revenue + natural user demand is used to purchase high-end cosmetics that can only be obtained through upgrades/n-to-1 synthesis, this top-down demand will drive the prices of low-end cosmetics (as materials for high-end cosmetics), thus driving the valuation of tokens (materials) and yield assets.

In Other Words, Matr1x's Leap to Economic Sustainability Will Ultimately Depend on Its Cosmetic Market

Therefore, if Matr1x achieves recursive network effects through Web3, its leap to economic sustainability will ultimately be realized by reaching critical scale through its cosmetic market.

Vertical Axis: Character ROI%

Horizontal Axis: DAU/Game Popularity

Web3 Recursive Growth Phase

(Required for Achieving Low-Cost Network Effects)

As Matr1x develops, the rising popularity and wealth effects will actively drive the development of FIRE + character ROI…

The demand for ROI will initially drive robust returns for "FIRE + characters," while less than ideal DAU may mean lower initial pricing for cosmetic NFTs.

Consumer Phase

(Required to Maintain the Economic System)

As the game achieves network effects, demand and pricing for NFTs will explode, while earning assets become a means. A = B + C

Mixed ROI of Avatar

B: ROI for Acquiring Loot Boxes/Cosmetics

C: ROI for Acquiring FIRE + "Breeding" Characters

Critical Point: Assuming Matr1x's economy develops healthily, characters should transition from here

Primarily used for increasing ROI productive assets (new FIRE characters)

Obtaining rare cosmetics in a cheaper way to enhance social status

The Challenging Flywheel Summary + Matr1x's Choices

Breaking through the flywheel will be a challenge, but we believe that Matr1x's design philosophy and production value give it a chance to pioneer this category in Web3.

Colored Box Left

Trap: Production quality is often unsatisfactory; no one will spend money just for fun.

Solution: A game that can be considered top-tier in Web3 and sufficiently stunning in Web2; thus maximizing non-investment return users. The team has the right product and foundation to achieve this.

Colored Box Right

Trap: TAM too small, or the cost of acquiring users through cash CAC is too high.

Solution: The mobile FPS TAM is massive, and the recursive growth through characters as profitable assets in Web3 has been validated to scale.

Colored Box Below

Trap: Most game types lack sufficient viral spread/gradually sink.

Solution: FPS is a category that can go viral. CS:GO skins are a validated consumer market. All means (Web3 fees, social marketing, excellent design, etc.) can be utilized to stimulate user spending.

Above: If the player count does not reach a certain scale, cosmetic NFTs will not have considerable market value.

Bottom Left: If there is no considerable market value for cosmetic NFTs, asset ROI will be unsustainable.

Bottom Right: Without sustainable asset ROI, it will be impossible to retain a considerable player base.

Matr1x's Performance in GTM So Far is Encouraging and Reflected in Robust NFT Performance

Timely delivery of the roadmap, steady follow-up of hype, and ongoing appreciation for its NFTs are strong evidence of the Matr1x team's GTM strength, and we expect this trend to continue.

1H23

• September 2022 Pre-registration

• Demo + Gameplay Release

• January 2023 YATC: Giveaway of Genesis NFT

• February 2023: Matr1x 2061 NFT Minting

• February 2023: First Beta Test Reached 1.5-2k DAU + 700 PCU

• Roadmap + Continuous Content Release

3Q23

• New Website

• Staking Launch

• White Paper

• August 2023: Second Beta Test Reached 15k DAU + 4k PCU

4Q23e

• Release of New NFTs

• Release of Matr1x Fire

• NFT Trading Market

• Offline GTM

• Streamers/KOLs Onboard

• Distribution of FIRE

• Genesis Character Minting

1Q24e

• Matr1x Fire Version Upgrade + Resource Pack

• Possibility of PC Mode

• Launch of eSports Events

• Release of PUBGM Brand Expansion Consulting

• Offline GTM

• Streamers/KOLs Onboard

• Possibility of MAX Listing & Token Rewards

2Q24e+

• Matr1x Fire Version Upgrade + Resource Pack

• Possibility of PC Mode

• Continued Operation of eSports Events

• Addition of PUBGM Gameplay in FIRE

• Offline GTM

• Streamers/KOLs Onboard

• Possibility of MAX Listing & Token Rewards

• Matr1x has achieved robust NFT performance in a turbulent industry, which not only proves product quality but also demonstrates the team's expertise in GTM.

• The rhythm around social media, Weibo space, offline events, content release, and expectation setting has reached textbook levels, surpassing most Web3 natives.

So far, the robust performance + foundation of Web2 GTM gives us continued confidence in the execution of the roadmap and the outlook for critical DAU levels.

We Believe the Ecosystem Will Generate Significant Revenue During Matr1x's Development

We analyze that, assuming a moderate level of success, Matr1x Fire could bring $50-150mm in revenue to the ecosystem. If it replicates the trajectories of companies like StepN and Axie, the revenue will be several times theirs.

Analysis of companies like Axie, StepN, Thetan Arena shows that introducing Web3 components typically increases ARPDAU by 15-25 times. In a generally successful scenario, a typical strategic shooting game = 10-30 ARPDAU on average = $150-750 ARPDAU.

StepN Peak DAU = 1.2 mm; Axie = 2.5 mm; Thetan = 2 mm. Web3 games average $250-500 per peak DAU.

CSGO has achieved ARPDAU of $200-400 after years of effort (2.5mm DAU corresponds to $500mm-1 Bn in revenue).

Through triangulation of the above data, under basic conditions, Matr1x should achieve $50-150mm in revenue within the first 12-24 months, with the potential to reach around $500mm in the best case. In a pessimistic scenario, the company should be able to cover production costs.

Risk Factors

As an entertainment application, Matr1x's DAU potential may be limited and must face competition from other entertainment-driven products (such as casual games, social media applications, etc.)

We believe that Matr1x's viral spread capability and profit potential are sufficient to achieve multiple hype cycles; while there are challenges regarding GTM and DAU ceilings, we believe: (a) the team's rich experience in Web2 marketing reduces the risk of large-scale adoption; (b) the profits generated from these hype cycles are sufficient for the team to achieve further growth through other products.

Once Web3's recursive growth begins, it cannot be stopped, which may become a burden for the team

The Web3 infrastructure still has shortcomings in mobile policies, fiat currency switches, and UI/UX, which may lead to execution risks in the recursive growth phase. However, we believe the team's past experience with high DAU FPS products, along with the precedents set by Axie and StepN at 1-2 mm peak DAUs, will help the team push industry boundaries. We analyze that compared to a year and a half ago, the industry's infrastructure has improved to support larger peak DAUs.

Resolving bugs, cheating, hacks, maximizing ROI, gold farming, etc., can have devastating impacts on the game

We believe the team has rich experience in addressing such FPS-specific issues and are confident that the increased incentive mechanisms in Web3 (especially around confiscating assets from users who violate user agreements) can effectively mitigate these known issues in Web2 FPS.

For various reasons, the investment returns driven by cosmetic NFTs may be unsustainable and/or highly dependent on the backend

This is a bet we are willing to make: assuming Matr1x reaches critical scale in DAUs, we believe social proof and the permanence/security of assets will be sufficient to stimulate substantial demand, and we choose to accept the risk that the business may not reach critical scale.

Profitable assets and tokens require more sedimentation, especially in downturn cycles

We believe the team is fully aware of this risk and will maintain close collaboration and discussion with them. Additionally, the sunk issue is also a factor in slowing user growth, and we hope it does not become a threat in the short term.

The MAX token may not correctly incentivize user behavior

We believe the key to governance tokens lies in rewarding users who continuously add value to the Matr1x ecosystem. The key lies in sustainability + value addition. The former requires continuous investment, while the latter needs measurement (most likely around activities, consumption patterns, and referrals/new user acquisitions). We fully recognize the risks of merely distributing tokens as a means to reward users, as these users may only bring temporary benefits to the platform, and we will maintain close collaboration and discussion with the team on this front.

Future Product-Related Risks

Brand expansion always carries risks. We believe the team's experience in the FPS field can help them navigate other similar areas well. We still have doubts about non-FPS categories, but we believe Matr1x will increasingly transition to a publisher model.

Mobile Device-Related Risks: iOS and Android Policies

We believe policies are shifting in a positive direction. For Web3 to achieve mass adoption, it must enter the mobile market (eventually Apple and Google must cooperate). We believe Matr1x will ultimately need to share revenue with Apple through Spark like StepN, but this is not a risk we need to avoid at all costs.

Challenges of Team Internationalization and English Proficiency

We recognize that the team's composition is very Chinese, and we believe they can strengthen their overseas business. As the business develops, the company will have the capacity to hire top talent + recruit talent from the community.

Regulatory Risks of Issuing Tokens and NFTs

We acknowledge that platforms incorporating Web3 functionalities face increased risks, especially concerning customers in the U.S. and mainland China. We advise the team to take strong measures, even if it may harm the business, to avoid high-risk areas when necessary. Additionally, a well-designed token distribution system will help ensure the company does not violate the legal framework of its jurisdiction, which may require the company to invest considerable legal resources.